June 13, 2016
The British may be leaving. The British may be
leaving.
Last
week, the interest rate on 10-year U.S. Treasuries dropped to levels last seen
in 2013. Why, you may ask, would bond yields move lower when Federal Reserve policy
is to push interest rates higher? The answer can be found across the pond.
On
June 23, the United Kingdom, a.k.a. Britain, will vote on whether the country
should remain in the European Union (EU) or leave. The New York Times reported:
“The
economic effect of an exit would depend on what settlement is negotiated,
especially on whether Britain would retain access to the single market for
duty-free trade and financial services...Most economists favor remaining in the
bloc and say that an exit would cut growth, weaken the pound, and hurt the City
of London, Britain’s financial center. Even economists who favor an exit say
that growth would be affected in the short and medium term, though they also
say that Britain would be better off by 2030.”
When
polling indicated voters were leaning toward leaving the EU, and bookmakers
indicated a neck-and-neck race, investors got worried and sought the safety of
U.S. Treasuries. That helped push Treasury yields lower.
Rates
on government bonds in Europe, and elsewhere, moved lower, as well. In some
cases, those rates dropped into negative territory. Barron’s reported more than $10 trillion of government bonds had
negative yields last week. Investing in 10-year Swiss government bonds cost
investors about 50 basis points, while investing in Japanese 10-year government
bonds cost 17 basis points.
That makes earning about 1.6 percent on a 10-year U.S.
Treasury look pretty good.
Data as of 6/10/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
-0.2%
|
2.6%
|
-0.4%
|
8.5%
|
10.5%
|
5.4%
|
Dow Jones Global ex-U.S.
|
-0.9
|
-1.0
|
-12.4
|
-1.2
|
-1.2
|
0.3
|
10-year Treasury Note (Yield Only)
|
1.6
|
NA
|
2.5
|
2.2
|
3.0
|
5.0
|
Gold (per ounce)
|
2.8
|
20.1
|
7.3
|
-2.7
|
-3.6
|
7.7
|
Bloomberg
Commodity Index
|
2.1
|
13.2
|
-13.4
|
-12.0
|
-11.7
|
-6.4
|
DJ
Equity All REIT Total Return Index
|
0.4
|
8.0
|
15.6
|
10.9
|
12.3
|
7.2
|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg
Commodity Index returns exclude reinvested dividends (gold does not pay a dividend)
and the three-, five-, and 10-year returns are annualized; the DJ Equity All
REIT Total Return Index does include reinvested dividends and the three-,
five-, and 10-year returns are annualized; and the 10-year Treasury Note is
simply the yield at the close of the day on each of the historical time
periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com,
London Bullion Market Association.
Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not
applicable.
who cooked adam
smith’s dinner? It’s the title of a
new book and an interesting question. The
New York Times offered two answers:
“The first is ‘self-motivated economic actors.’ As
Adam Smith himself famously wrote, ‘It is not from the benevolence of the
butcher, the brewer, or the baker that we expect our dinner, but from their
regard to their own interest.’ The second is his mother. Margaret Douglas was
just 28 when her husband died and Adam Smith still in utero. At the age of 2,
Smith inherited his father’s estate, and his mother saw that he got his dinner
for the rest of her days.”
Presumably, Smith’s mother received no wages, so how
much was her labor worth? How much is the unpaid work of parents and family
caregivers worth? A couple studies have explored the issue.
First, let’s
consider parents.
The Bureau of
Economic Analysis reported unpaid work at home would have boosted U.S.
gross domestic product (GDP) – the value of all goods and services produced in
a country – by 26 percent in 2010.
The U.S. GDP was $14,660 billion in 2010. So, the
answer is about $3,812 billion or $3.81 trillion. That’s slightly less than Japan’s
2015 GDP ($4,123 billion) and slightly more than Germany’s ($3,358 billion).
Let’s turn
our attention to caregivers.
The AARP Public
Policy Institute found about 40 million family caregivers spent 37 billion
hours providing care to adult family members during 2013. The value of that
care was estimated to be about $470 billion. That’s “as big as the world’s
largest company and bigger than Medicaid and out-of-pocket spending on health
care.”
We’ve mentioned before some experts don’t believe GDP is
an accurate measure of economic well being because it doesn’t really reflect
the value of all goods and services in a country. Clearly, it doesn’t account for
parenting and caregiving although both are important to society’s well being.
How much do
you suppose volunteering is worth?
Weekly Focus – Think About It
“You are not here merely to make a living. You are
here in order to enable the world to live more amply, with greater vision, with
a finer spirit of hope and achievement. You are here to enrich the world, and
you impoverish yourself if you forget the errand.”
--Woodrow Wilson, 28th United States President
Best
regards,
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LP Financial Advisor
Securities offered through LPL Financial Inc., Member FINRA/SIPC.
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* This newsletter was
prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with
the named broker/dealer.
* The Standard & Poor's
500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock
market in general. You cannot invest directly in this index.
* The Standard & Poor’s
500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect
fees,
expenses, or sales charges.
Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note
represents debt owed by the United States Treasury to the public. Since the
U.S.
Government is seen as a
risk-free borrower, investors use the 10-year Treasury Note as a benchmark for
the long-term bond market.
* Gold represents the
afternoon gold price as reported by the London Bullion Market Association.
The gold price is set twice
daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in
U.S. dollars per fine troy ounce.
* The Bloomberg Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT
Total Return Index measures the total return performance of the equity
subcategory of the Real Estate Investment Trust (REIT) industry as calculated
by Dow Jones.
* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.
* Opinions expressed are
subject to change without notice and are not intended as investment advice or
to predict future performance.
* Economic forecasts set
forth may not develop as predicted and there can be no guarantee that
strategies promoted will be successful.
* Past performance does not
guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly
in an index.
* Consult your financial
professional before making any investment decision.
* Stock investing involves
risk including loss of principal.
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Sources:
http://www.barrons.com/articles/global-worries-spur-negative-interest-rates-1465628986?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-13-16_Barrons-Global_Worries_Spur_Negative_Interest_Rates-Footnote_4.pdf)
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